Tyler Cowen's Blog, page 265

Automation, inequality and geopolitics

Joss Delage wrote me with a question, here is part of it:

Here’s what I’m curious about: assuming things turn out as described in your book, what do you think are the geopolitical ramifications?  More specifically, do you envision some countries specializing to attract the top earners, and if so which and how?

I don’t cover geopolitical questions in Average is Over, but here are a few observations:

1. I see elites, working in a coalition with elderly voters, as able to control the political agenda enough to prevent most developed economies from flipping into purely destructive economic policies.  So I expect the leading wealthy nations to maintain relatively strong positions in the world.  (The book by the way does explicitly predict that U.S. government will get bigger and that social welfare spending will rise, contrary to what some reviewers have suggested.)  This will be hardest, however, for the relatively pure democracies, such as the Westminster systems.

2. Some small nations, most notably Monaco and Luxembourg and Singapore, have the option of “specializing” in the higher earners and keeping in only a minimum of stagnant wage earners.  A mix of immigration policies and land prices will enforce this choice.  Commuting will rise in importance, where possible.  But such outcomes will not describe a very large share of the world.

3. One class of vulnerable nations will be current exporters who rely on low wages to be competitive.  Automation in the wealthy nations will disrupt their business models.  The current Indian model of “doing most things internally” — which is by no means ideal — will be relied on increasingly.  Export-led surpluses will not be available to drive growth, as the wealthier nations become the export leaders by increasingly wide margins.  Given the rise of smart software and robots too, labor costs will not hold them back.

4. African nations and other poor nations, such as those in southeast Asia, also will not have the option of “last generation” export-led growth, pockets of resource wealth aside.  Many of these nations will specialize in lower middle class earners.  Free-riding upon global technologies will be important, as with cell phones today.  Many more technologies will spread in this fashion, with the aid of price discrimination.  We might see billionaires adopting particular regions or groups and transferring technologies to them at relatively low cost.  “Wealth without wealth generation” will describe many locales.

5. One key question is whether software-led growth will lower or raise the relative price of most natural resources.  There will be much more production!  One possible scenario is that manufacturing growth will rise more rapidly than natural resource production will be eased.  Countries with the higher-priced natural resources will then be geopolitical winners.  And in that case high energy prices become quite a burden on lower middle income earners, who switch out of cars and into bicycles, mass transit, and the like.  Yet it remains possible that smart software will do more for energy production, or for copper production, than it will for manufacturing production.

6. In talks (but not in the book) I have suggested that food production is the best candidate for “what will be most difficult to augment” in an age of smart software.  Food production seems harder to “wall off” and it seems more embedded in local culture (for better or worse, usually for worse) than factory production.  See our MRU video on conditional convergence, which considers the work of Dani Rodrik in this regard.  It would mean that the price run-up for Midwestern farm land in the United States may not be a bubble.

Let’s say smart software, robots, and artificial intelligence really do pay off.  What other geopolitical predictions would this imply?

The culture that was Singapore (Haw Par Villa)

It has its gruesome side, as illustrated by this look at a traditional site for visits, Haw Par Villa:

Thousands used to throng the park, and it once stood shoulder-to-shoulder with attractions like Singapore Zoo and Jurong Bird Park. “Every Singaporean over the age of 35 probably has a picture of themselves at Haw Par,” said Desmond Sim, a local playwright. Those pictures would probably include the following statues, each made from plastered cement paste and wire mesh: a human head on the body of a crab, a frog in a baseball cap riding an ostrich, and a grandmother suckling at the breast of another woman.

But the highlight of this bizarre park are the Ten Courts. A tableau of severe disciplines are shown in painstaking detail, along with a placard stating the sin that warranted it. Tax dodgers are pounded by a stone mallet, spikes driven into a skeletal chest cavity like a bloodthirsty pestle in mortar. Spot the tiny tongue as it is pulled out of a screaming man, watch the demon flinging a young girl into a hill of knives. Ungratefulness results in a blunt metal rod cutting a very large, fleshly heart out of a woman. Perhaps the most gruesome depiction is an executioner pulling tiny intestines out from a man tied to a pole. The colons were visible and brown. The crime? Cheating during exams.

The park may be closing down, with few remaining attendees, though from the article it seems you still can go.  Hurry up.

You can read TripAdvisor reviews of the park here.  Here is Wikipedia on the park.  Here are Flickr images.  There are further sources here.

Are these the cultural preconditions of capitalism and good governance?  I know which of my colleagues will be most happy to read about this.

Testicle car markets in everything

Many of us testicle owner/operators have often claimed that we’d happily donate our (usually left) testicle for something, usually some kind of car. So it shouldn’t be so shocking to hear that some loon is actually doing just that. One nut for $35,000. Which he’s using to buy a Nissan 370Z.

As much as I’d like to picture the scene where this ashen-faced man stumbles into a Nissan dealership, plonks a jar with a floating, solitary testicle on the counter, and points to a red 370Z before collapsing, the reality is much more orderly.

The man, Mark Parisi, is donating his nut to a medical research organization for a sum of $35,000.

There is more here, noting that the deal may not survive this publicity.  Here is more on Mark:

There are other advantages to being a human Guinea pig: He gets free checkups, which can save him around $700.

Parisi estimates he’s saved more than $150,000 over the past two years by participating in other medical studies, including an Ebola virus study that paid $5,000 a week, the Province Journal reported.

For the pointer I thank Skeptical Scalpel and @hswapnil.

None dare call it redistribution

Rebecca M. Blank was a top candidate in 2011 to lead President Obama’s Council of Economic Advisers, but then the White House turned up something politically dangerous.

“A commitment to economic justice necessarily implies a commitment to the redistribution of economic resources, so that the poor and the dispossessed are more fully included in the economic system,” Ms. Blank, a noted poverty researcher, wrote in 1992. With advisers wary of airing those views in a nomination fight, Mr. Obama passed over Ms. Blank, then a top Commerce Department official and now the chancellor of the University of Wisconsin. Instead he chose Alan Krueger, a Princeton economist.

“Redistribution is a loaded word that conjures up all sorts of unfairness in people’s minds,” said William M. Daley, who was Mr. Obama’s chief of staff at the time. Republicans wield it “as a hammer” against Democrats, he said, adding, “It’s a word that, in the political world, you just don’t use.”

There is more here.

Assorted links

1. The Guardian asks various famous writers to pick their favorite books from 2013.

2. On the Star Trek economy.

3. Leon Wieseltier’s excellent review of Ari Shavit’s excellent My Promised Land: The Triumph and Tragedy of Israel.

4. Nick Gillespie interviews Virginia Postrel.

5. From 2009, Bueno de Mesquita’s predictions on Iran.  There is more here.

6. Fake and genuine taarof.

The literature on Iranian negotiation techniques

I found this 2004 piece (pdf) by Shmuel Bar.  It has numerous interesting and detailed points, though I do not think it can be considered objective.  Here is one excerpt:

Iranian negotiators are methodical and have demonstrated a high level of preparations and a detailed and legalistic attitude. On the other hand, their communication tends to be extremely high-context; ambiguous, allusive and indirect not only in the choice of words utilized, but in the dependence of the interpretation of the message on the context in which it is transmitted: non-verbal clues, staging and setting of the act of communication, and the choice of the bearer of the message. Procrastination is another key characteristic of Iranian negotiation techniques. This stands in sharp contrast to American style communication (Get to the point/Where’s the beef?/ time is money!) which places a high value on using lowest common denominator language in order to ensure maximum and effective mutual understanding of the respective intents of both sides. This tendency has been explained by an aversion to an assumption that the longer the negotiations last, the greater a chance that things can change in his favor and an intrinsic Shiite belief in the virtue of patience.

Dissimulation, high-level disinformation and manipulation are widely acceptable.

…one may paraphrase Marshall McLuhan in saying that in Iran frequently “the messenger is the message.”

…One of the characteristic traits of Iranian negotiation techniques is that the haggling goes on even after an agreement is struck.

I suppose we’ll see how it goes.

What are the political effects of increasing inequality?

Kevin Lewis reports some new research to us:

Economic Inequality and Democratic Support

Jonathan Krieckhaus et al.

Journal of Politics, forthcoming

Abstract:

Does economic inequality influence citizens’ support for democracy? Political economy theory suggests that in a country with high inequality, the majority of the population will support democracy as a potential mechanism for redistribution. Much of the survey and area-studies literature, by contrast, suggests that inequality generates political disillusion and regime dissatisfaction. To clarify this disagreement, we distinguish between prospective versus retrospective evaluations as well as between egocentric versus sociotropic evaluations. We test the resulting hypotheses in a multilevel analysis conducted in 40 democracies. We find that citizens are retrospective and sociotropic, meaning that higher levels of economic inequality reduce support for democracy amongst all social classes. We also find a small prospective egocentric effect, in that the reduction in democratic support in highly unequal countries is slightly less severe amongst the poor, suggesting they believe that democracy might increase future redistribution.

I do not see an ungated copy, but the data for the paper are available here.

MRUniversity class on International Finance

We will be complementing our classes on Development Economics, Mexico’s Economy, The Eurozone Crisis, and International Trade with a class on International Finance.  What topics would you like to see us cover?

Assorted quotations

1. “Only a few authors have bothered to approach the disintegration of America in an innovative way.”

2. “They estimated that without antibiotics, one out of every six recipients of new hip joints would die.”

3. “The urban refugees come from all walks of life — businesspeople and artists, teachers and chefs — though there is no reliable estimate of their numbers. They have staked out greener lives in small enclaves, from central Anhui Province to remote Tibet. Many are Chinese bobos, or bourgeois bohemians, and they say that besides escaping pollution and filth, they want to be unshackled from the material drives of the cities — what Ms. Lin derided as a focus on “what you’re wearing, where you’re eating, comparing yourself with others.”  The link is here.

4. “It is the first time that the West has lost a soft power contest with Russia.”

5. “I do take painting seriously,” he said. “It’s changed my life.”

Best movies of 2013

This has been an excellent year for movies, in fact I can’t remember a period so good.  Here is what I liked, noting that foreign films are classified by “what year did I have a chance to see them?” and not by their initial years of release, which are usually pre-2013.  Here goes, more or less in the order I saw them:

Amour, by Michael Haneke.

The Chilean movie NO, which is an account of how, even in the strangest of circumstances, democracies filter policy outcomes, as indeed autocracies do too (in different ways).

Spring Breakers

The Gatekeepers, I taught that one in Law and Literature class last year.

Room 237, an excellent mock on Straussians, through the medium of the fandom cult for Kubrick’s The Shining.

Oblivion

Stories We Tell

Before Midnight, completes the trilogy realistically, with charm and bite.

In a World…, “a subtle and entertaining movie with much economics in it, most of all the economics of superstars in the “voiceover” sector.”

The Autobiography of Nicolae Ceacescu, “is mesmerizing, like watching one of the great silent films of the past, and the scenes where the Chinese communists praise the Romanian communists are some of the best ever filmed.”

Pieta, brutal Korean brutal tale involving money lenders and non-price compensation schemes.

Fill the Void

World War Z

In Another Country, Korean and French juxtaposed.

The Attack, possibly my favorite of the year, if I had to pick.  Lebanese and Israeli in its sources.

The Act of Killing, mostly set in Sumatra, brutal, has lots of social science.

Happy People: A Year in the Taiga, don’t tell Stevenson and Wolfers.  Directed by Werner Herzog.

Gravity

Captain Phillips — treat the two embedded stories as implicit commentary on each other.

12 Years a Slave

Hollywood redeemed itself with those last three, after what was otherwise a dismal year for mainstream releases.

I loved the documentary In Search of Blind Joe Death: The Saga of John Fahey, although perhaps it is for fans only.

The crop of Christmas movies isn’t even out yet.